UPDATE: This article was originally published in September 2020, but due to its popularity it’s been updated on 25 October 2021.
There has been a rise in the number of South Africans making use of crowdfunding platforms to raise funds to launch a business or for a good cause. Recently we saw DJ and businessman, Nkosinathi Maphumulo, known as DJ Black Coffee, launch a crowdfunding campaign to raise money to support small businesses during the COVID-19 pandemic.
Crowdfunding platforms such as Feenix, Thundafund, Uprise Africa, Jumpstarter Crowdfunding and BackaBuddy report that they have all seen an increase in activity on their platforms since the announcement of the nationwide lockdown, according to African News. Backabuddy reported a 32% increase in the number of campaign submissions and a 72% increase in individual donations.
To address the need of entrepreneurs whose business funding applications have been rejected, the Ubuntu startup fund launched a crowdfunding app for startups during the first week of October 2021. Ubuntu, which is in its beta stage, has since its launch raised a total of R8,000 for three projects, according to Bizcommunity.
“We managed to successfully raise funds for a small project as well as raise half the funds needed for two more projects. [It] is not bad considering most people offered a minimum of R50 to support a project,” Jonson Ncube, the developer of the Ubuntu app, said.
According to a press release, the app can be downloaded from Apple’s AppStore, Android‘s PlayStore, and Huawei’s AppGallery. The app allows people to make a minimum contribution of R50 towards a startup’s project.
There are multiple advantages to crowdfunding, not only does it provide an alternative way of raising capital, but for new startups, it also provides market validation and has marketing benefits.
Vivian Hlonyana, marketing manager, Uprise.Africa in an interview with SME South Africa highlighted some of these benefits for SMEs.
“Entrepreneurs using crowdfunding also receive frequent feedback and analysis on their business, growth and expansion plans, by investors carrying out their own due diligence prior to investing, which can be invaluable in a company’s success.”
SME South Africa did the research – we compare three of the most popular crowdfunding platforms in South Africa, taking into account affordability and what you need to sign up – The People’s Fund, Uprise.Africa, and BackABuddy.
ABOUT THE PEOPLE’S FUND
The People’s Fund, which launched in 2017, is a purchase order crowdfunding platform for businesses that have orders with government and corporates and are looking for capital to complete the order. Businesses must be 51% black-owned to qualify.
The People’s Fund funds contracts and tenders of any size as long as the capital required is not more than R1 million. The company makes purchase of the goods on the business’s behalf and take a profit share from the contract or deal. They assess if the current order has a large enough margin for them to finance it.
The criteria include the project needs to be executable and paid back within 60 days. They look at all industries as long as the deal can be done and paid back within a 60-day period. Service projects are treated on a case-by-case basis. There are certain industries they prefer not to fund, including construction.
The People’s Fund does not approve applications where it’s the business’s first time delivering to a client that is not on their preferred client list; and/or when it’s a business’s first time making use of purchase order financing.
According to its website, The People’s Fund does not charge interest. The website reads, “Depending on your margin, we currently charge a facilitation fee of 6% (plus VAT) of the total purchase order value in order to facilitate you with capital to execute your purchase order. However, if your total purchase order value is R50 000 or less, then we charge a standard facilitation fee of R3 000 (plus VAT) in order to facilitate you with capital to execute your purchase order”.
-The entire process is digital they are able to approve your application directly on the platform provided all the relevant documents are present.
– They look at all stages of business.
– TPF pays the suppliers directly once the business’ application is approved.
– The platform exposes startups to potential customers and ‘evangelists’.
– Application approvals take between 2-5 days. Repeat applicants who have already worked with TPF and whom they have worked well with can even be funded within a day.
– You can apply online via the following link: https://thepeople.co.za/purchase-orders/. If you need assistance with completing the online application, you can book an appointment on the following link: https://thepeople.co.za/booking/. You can also contact their office on 0812851839 or 0110261474 to set up an appointment to get assistance.
Launched in 2017, Uprise.Africa is the first equity crowdfunding platform in South Africa. It allows private individuals to invest in early-stage businesses in exchange for equity.
To get started, create a user profile on www.uprise.africa, start a pitch, and complete the application form. Once approved, build your pitch and set a funding goal between R500 000 and R50 000 000, and start raising the funding you need.
Entrepreneurs behind each crowdfunding campaign will need to be available every day to answer questions from investors and select media appearances.
Also, Uprise.Africa recommends that 20-30% is raised offline on a private raise from friends and family so once the campaign is live and publicly marketed to generate FOMO due to the interest already displayed.
Cost of Capital Raise:
8% excluding VAT is deducted on successful capital raises.
This is split accordingly:
1% (one percent)(this amount will not accrue VAT as it is part of the subscription raise) of the proceeds raised from this public offering will be retained by Uprise Fund I to cover the running costs of Uprise Fund
2% Uprise Management company fee – to ensure legal compliance and judiciary oversight post raise for the first year (after year one the company will need to take on their own post-campaign reporting cost)
5% Uprise.Africa platform- capital raise fee.
According to their website, as part of live public campaign preparation, Uprise.Africa recommends that entrepreneurs factor in approximately R150 000 – R200 000 for legal costs, video production, professional financial advice, social media ads etc. Transaction fees are charged on investments. EFT fee, R10.00; instant EFT 1.5%; credit/debit card 2.5%; Paypal 5.5%.
– The crowdfunding platform also serves as a space for small business owners to receive feedback from investors, as well as get help reaching their target market, and to test the viability of their offering.
– The platform also allows both non-South African and South African citizens to invest.
– Any business can register on the platform to receive funding.
– Once the application form is approved, the entrepreneur will be contacted for a free consultation which will inform the decision of whether a business is ideal and ready for onboarding.
– Uprise.Africa enables the entrepreneur to reach a broad spectrum of investors who eventually become their customers and brand ambassadors.
– Users on the crowdfunding platform can set their own funding goal, the maximum is R50 million.
– After onboarding Uprise will conduct a legal and financial due diligence on the business seeking funding, with the support of specialist analysts. Uprise.Africa may help set a funding goal between R500 000 and R50 000 000.
This platform allows users to create a crowdfunding campaign for an individual (i.e. yourself or your business) or for a charity profile for a community organisation or a non-profit.
Thus far, R196 819 391.97 were raised for 16228 causes with the help of 20990 Cause Champions.
On the BackABuddy website they write,”You can quickly and easily create a fundraiser on the BackaBuddy site, then share your campaign link with your friends, family, and colleagues – your crowd – to invite monetary donations.”
The BackaBuddy Foundation collects a 5% +VAT admin fee and a transaction fee which covers the costs of our 3rd party bank and payment channel fees. More about their fees here.
– Ideal for social impact project and creative entrepreneurs. This crowdfunding platform love campaigns that make use of their ‘champion’ model – which means funds can be raised on behalf of a charity or an individual in need.
– The success of a campaign is often dependent you and your champions on sharing your project/ cause with the world (by using i.e. social media marketing and word of mouth).
– You can alert your networks of your campaign by sharing on social media, emailing relevant groups and by word of mouth.
– You can encourage “champions” to participate and raise money on your behalf.
– It is free of charge to create a campaign is free and there are no charges if you don’t raise funds.
– There are no time limits imposed on campaigns and no penalties if you don’t reach your target. Also, you can also carry on receiving donations even after you’ve met your target.
– Donors are given the option to cover the 5% admin fee, more than 50% do so.
– They ‘vet’ individual campaigns and charity registrations before they are activated on the site.
Disclaimer: Please note that some of the links in this article are affiliate links and SME South Africa will earn a commission if you purchase through those links. All recommendations have been carefully considered and they are resources SME South Africa has found helpful and trustworthy.